A framework for action:

social enterprise
& impact investing
2

A Framework for Action: Social Enterprise & Impact Investing

June 2012

About the United Nations Global Compact

The United Nations Global Compact is a call to companies everywhere to
voluntarily align their operations and strategies with ten universally- accepted
principles in the areas of human rights, labour, environment and anti-corruption,
and to take action in support of UN goals, including the Millennium Development
Goals. The UN Global Compact is a leadership platform for the development,
implementation and disclosure of responsible corporate policies and practices.
Launched in 2000, it is largest corporate responsibility initiative in the world,
with over 10,000 signatories based in 140 countries. For more information:
www.unglobalcompact.org

About The Rockefeller Foundation

The Rockefeller Foundation supports work that expands opportunity and
strengthens resilience to social, economic, health and environmental chal-
lenges—affirming its pioneering philanthropic mission since 1913 to promote
the well-being of humanity. The Foundation operates both within the United
States and around the world. The Foundation’s efforts are overseen by an
independent Board of Trustees and managed by its president through a leader-
ship team drawn from scholarly, scientific, and professional disciplines. www.
rockefellerfoundation.org

United Nations Global Compact Team: Gavin Power; Bianca Wilson

The Rockefeller Foundation Team: Margot Brandenburg;
Kelly Melia-Teevan; Justina Lai
Developer & Project Manager: Preeth Gowdar
Designer: Hedie Assadi Joulaee

Disclaimer
This publication is intended strictly for learning purposes. The inclusion of
company names and/or examples does not constitute an endorsement of
the individual companies by the United Nations Global Compact Office. The
material in this publication may be quoted and used provided there is proper
attribution.

Copyright ©2012
Contents

Introduction4
A Framework for Action 6
Prioritize Rationale 6
Define Strategy  9
Choose Approaches 15

Case Studies 24
Acknowledgements 27
References and Resources 28
4

INTRODUCTION
The combined resources of government and strategically valuable investment. Based on this
philanthropy alone are insufficient to solve the concept, the United Nations Global Compact
many development challenges of the twenty- and The Rockefeller Foundation seek to encour-
first century. Over the past decade, there has age investors, corporations and policymakers to
been growing recognition within the private explore the potential of social enterprise. They
sector of the need to take a greater and more have therefore developed this “Framework for
active role in promoting sustainable develop- Action” to enable the exploration process. The
ment globally, through generating employment facets of the Framework are presented through
for youth, empowering women and tackling a strategic (and often market-focused) lens, but
challenges related to energy, water and hunger. it is important to note that the philosophy of
Corporations and investors understand the long- corporate sustainability – defined as a com-
term benefits of contributing to development, pany’s delivery of long-term value in financial,
and as such, initiatives to advance the sustain- social, environmental and ethical terms – fun-
ability agenda have gained strength in the damentally underpins the content.
recent past and will continue to play an impor- The scope of a discussion centered on social
tant role in the future. However, in the quest enterprise and impact investing, depending on
for innovative ways to engage the private sector one’s perspective, can be broad. However, this
to bolster global sustainability further, a new Framework for Action is focused on, but not
approach has gained significant momentum in limited to, the following:
recent years. It is captured by two themes: • Activities that provide products or services to
• Social enterprise development, defined as individuals in low-income populations;
creating and nurturing micro-, small- and • Intention to proactively create positive value
medium-sized businesses that aim for posi- rather than seeking to avoid negative impact;
tive social or environmental outcomes while
generating financial returns; and • Geographic focus on developing and emerg-
ing countries.
• Impact investing, defined as the placement
of capital (into social enterprises and other This Framework aims to assist three stakeholder
structures) with the intent to create benefits groups – investors, corporations and public
beyond financial return.1 policymakers – in understanding how to
navigate the social enterprise and impact invest-
Social enterprise and impact investing, by ing space. For each of these groups, the guide
definition, proactively intend to create positive outlines three steps: prioritizing the rationale for
impact as well as generate profits. Such a for- engaging, defining a strategy, and, finally, choos-
profit orientation has a twofold effect: ing specific approaches to execute. The entirety
• Financial return potential increases the at- of this Framework is structured around these
tractiveness of opportunities that produce a three steps. Each step will vary not only between
positive impact, drawing more private sector stakeholder groups, but also among individual
capital to areas that promote development. organizations. While there is no one-size-fits all
approach, the Framework is designed with the
• Private sector participation, and the oppor-
intention of allowing a variety of interested orga-
tunity to generate returns, spurs innovation
nizations to understand, in a structured fashion,
and growth; commercial capital pushes
how they may be best positioned to engage.
enterprises to experiment with new business
models, capture new opportunities and drive
for greater impact. 1 Social enterprise and impact investing overlap significantly, although
they are not synonymous. Social enterprises, for example, need more
Both private and public entities could benefit than just investment capital to be successful, while impact invest-
from viewing social enterprise development not ments can be made into non-enterprise structures like loan or equity
funds or infrastructure projects. This Framework encompasses both,
only as a responsibility but as a financially or with a focus on their intersection.
 5

Framework for Action

Investors
Prioritize Define Choose Social Enterprise
Corporations
Rationale Strategy Approaches Development
Governments

Framework for Action

Prioritize Define Choose

Rationale Strategy Approaches

• Direct equity or debt

• Risk-adjusted • Invest directly investments
financial returns • Invest in funds/ • Equity or debt funds
Investors • Demand from impact- intermediaries • Guarantee
seeking asset owners • Purchase structured programmes
• Learning from investing financial products • Fixed income or public
equities

• Engagement with • Engage new • Investments and

new markets businesses externally partnerships
• Learning from • Launch new • Incubation Social Enterprise
Corporations innovating businesses internally • Procurement Development
• Risk management • Realign core business • Distribution
• Contribution to • Product development
corporate sustainability
objectives

• Leveraging greater • Increase capital • Incentives

Governments capital for development inflows • Capital and technical
• Advancing specific • Direct capital assistance programs
policy objectives • Strengthen enterprises • Regulation
and intermediaries
6

a framework for action

prioritize rationale
Identify and prioritize rationale that support long-term objectives

Financial Returns
Low-income populations in developing coun-
tries were once of little interest to investors Impact investments actively seek financial
and corporations. Today, however, there is a returns. Return expectations vary widely as
growing recognition of the substantial market investors have differing strategies around risk,
potential those populations offer. These “base financial return and impact. Resulting objec-
of the pyramid” markets are attractive for their tives can range from preserving principal to
size and increasing purchasing power. But be- realizing risk-adjusted market returns.
cause these communities’ basic needs have gone Some investors believe economic activity in
underserved for so long, either by the market, low-income markets in developing countries
the public sector or both, they are also attrac- is less correlated with macroeconomic cycles
tive for the significant pent-up demand they in mainstream commercial markets than
represent. As operating infrastructures are built other types of investment and offers portfolio
out locally, well-run social enterprises will enjoy diversification.
better chances of succeeding commercially, and
will thus present greater investment opportuni- Demand from Impact-Seeking Asset Owners
ties. The promise of such opportunity presents At the institutional level, asset managers are
an invitation to stakeholders who can step in observing increasing demand from asset own-
early to these nascent markets. ers for socially and environmentally beneficial
investment options. In order to attract and
retain clients who express such a demand,
• Sizeable long-term opportunity institutional asset managers should begin to
• Strategic value create relevant investment offerings.
• Better business environments
Learning Value for Direct Investors
Venture investors entering social impact sectors
have been able to learn from the business
Moreover, beyond looking at capital returns,
model and operational innovation that occurs
investors and companies stand to harness sub-
in low-income markets and use this to add value
stantial strategic value. The learning, diversifi-
to other commercially-oriented portfolio com-
cation and risk mitigation opportunities present
panies. Such investors have also cited examples
substantial upsides for engaging with social
of their impact investments providing leads
enterprise and related investments.
to other more commercial investments with
Finally, at a broader level, social enterprise
companies that operate in related low-income
development offers an attractive way to acceler-
markets.
ate the creation of shared value. Inclusive and
sustainable growth promotes economic and
social development and subsequently creates a Corporations
more enabling business environment in which In addition to realizing financial returns and
both investors and corporations may prosper. bolstering sustainable business activities, corpo-
rations have the potential to unlock a signifi-
Investors cant amount of strategic value on a variety of
fronts. This strategic value may easily align with
Institutional investors, commercial equity funds
many of the innovation and emerging market
and philanthropic investors have all made
growth goals that corporations hold.
entries, at varying levels, into impact investing.
A greater amount of capital is expected to flow
into the space for a variety of reasons.
 7

New Market Development Contribution to Corporate Sustainability

Objectives
Many companies are starting to recognize that
low-income populations in emerging markets Given many of the rationale described here,
will offer a significant consumer and supplier impact investing serves as an attractive way for
base in the long run. To be well positioned for corporations to work towards achieving their
this opportunity, they are beginning to make internally developed sustainable develop-
learning investments today that will help them ment goals as well as advancing universally
serve that high-potential market segment in the accepted principles, such as those set forth by
future. the UN Global Compact in the areas of hu-
man rights, labour, environment and anti-
Learning from Innovation corruption. Given the significant scalability and
Operating in low-income markets forces com- self-propelling growth of many for-profit social
panies to innovate in order to create low-cost enterprises, these businesses have the potential
products, new business models and efficient to create more widespread social and environ-
supply chains. Drawing on their experience mental impact than less scalable initiatives.
with customizing new offerings to the “base of In addition, engaging with social enterprise
the pyramid”, companies can apply novel busi- may bring a host of other more distinctive bene-
ness approaches toward this group, improving fits. For example, renewable energy investments
their core businesses. could produce long-term cost savings, selling
affordable products could draw valuable long-
Risk Management term loyalty to a brand, and some companies
may value broad-based reputational gains from
Managing social enterprise activity provides not making positive contributions to low-income
only a means to monitor the operating environ- communities.
ment in commercial business regions but also
to build relationships within that region.
Engaging with social enterprise allows com-
panies a variety of options to diversify economi-
cally – through entering different markets –
as well as operationally – through interactions
with new customers, suppliers and products.
8

Governments
From a public policymaker’s perspective,
private sector-based social enterprises can be
effective in addressing social, environmental
and other sustainability challenges that are
becoming increasingly costly for governments
to tackle alone. However, a number of existing
market failures – such as insufficient industry
infrastructure and information asymmetry –
stand in the way of accelerating corporate and
investor engagement with the space. Custom-
ized policy can therefore play a major role in
fostering impact investing markets. Such policy
ought to be of keen interest to governments,
which have multiple incentives to create better
enabling environments for the private sector
both now and into the future.

Increased Capital for Development

Increased private investment in some devel-
opment-related sectors could allow government
spending to be redirected to other sectors less
likely to attract private capital and may also
reduce dependence on international grant fund-
ing. Moreover, a strong private sector ecosystem
will promote long-term investment beyond the
life of any particular political administration.
In cases where the government directly funds
social enterprise development activity, shift-
ing from a subsidy model to a for-profit model
provides a source of sustainable funding in areas
where it can be effectively deployed. This serves
to promote fiscal efficiency, allowing funds to be
regenerated and reinvested in new projects.

Advancement of Specific Policy Objectives

Private sector actors may be able to act more
quickly than large public bureaucracies and
may be more responsive to market opportuni-
ties that serve development objectives. Also,
such actors tend to provide financial discipline
to organizations, or even entire sectors, with
a history of dependence on subsidies, mak-
ing these organizations more efficient in their
development impact.
 9

define strategy
Understand the features unique to each strategy and adopt whichever best align
with prioritized rationale

Once an organization has developed its indi-

vidualized rationale for engaging with the so- Sample Sectors:
cial enterprise and impact investing space, the
• Agribusiness • Health
investor, corporation or policymaker must then
consider the range of strategies that exist for • Education • Housing
entering the field. They will need to evaluate • Energy • Water
not only which strategies they are most capable
• Financial Services
of adopting but also which would support their
goals given the rationale they have prioritized.
Each strategy comes with a unique set of op- Sample Geographies:
portunities and challenges that stakeholders • Africa & Middle East
should seek to understand carefully.
While considering the various broad-level • Asia & Pacific
strategies at hand, an organization will need to • Latin America
determine the timing and size of its intended
engagement. Stakeholders have the option to
make an aggressive play in the near-term in
hopes of investing early for a greater future
gain. They could alternatively adopt a more Investors
conservative strategy, making smaller invest- Key considerations for investors to take into ac-
ments or developing projects over a longer time count when developing an impact investment
horizon in order to test markets and therefore strategy include transaction costs, approach to
learn iteratively. Most of the strategies outlined structuring and the level of impact an invest-
in this section can be implemented via either ment manager seeks to achieve through the
approach. social enterprise.

Target Markets Direct Investments in Social Enterprises

Investors and corporations will need to choose Direct investment is the most active way in
target markets in terms of both the sectors which an investor can engage with social
and geographies in which they wish to invest. enterprise. It offers strong strategic value, for
Beyond the basic market opportunity, other example by providing exposure to new markets,
factors to consider include local regulatory but it also requires a high level of involvement,
environments and liquidity in private equity particularly in terms of sourcing and closing
and debt markets (especially for financial inves- transactions. It is a strategy typically suited less
tors). Also important to consider is strategic to institutional investors and more to venture
relevance based on the rationale initially capital funds, commercial banks, development
prioritized – for example, the ability to build banks and other investors with an on-the-
relationships in current operation regions, to ground presence in target regions. Investors
gain experience in new regions or to learn in with deep regional expertise tend to be better
sectors where innovation is most ripe. positioned to make direct social enterprise
Governments must consider whether they investments due to the grassroots operating
should seek to shape policy at the national nature of such businesses.
level, local level or both. Also, in addition to de-
ciding where to bolster private sector participa-
tion, governments will need to ascertain which
sectors most require and are best suited to take
in the benefits of private sector engagement.
10

In terms of the impact orientation of social Fund or Intermediary Investments

enterprises – that is, the ways and extent to Participating as a Limited Partner in invest-
which they achieve positive social or environ- ment funds can offer the opportunity to make
mental outcomes – investors tend to have a larger-sized investments than individual,
wide variety of choices. In order to standardize direct transactions while requiring a lower
the means of quantifying those outcomes and level of ongoing involvement. It is an approach
introduce more transparency around claims of suitable to a variety of investor types, including
impact, a number of industry-level initiatives institutional investors.
have emerged to create assessment frameworks There is a range of intermediary options
and rating services around impact measurement. from which to choose. When adopting this
Investors are encouraged to avail themselves of strategy, it is important to determine not only
these tools when making investment decisions. the commercial philosophy and objectives of
the fund but also the impact orientation of
An increasing number of investors are us- the intermediary. One category of funds can be
ing the Global Impact Investing Rating described as “impact first” investors, for whom
System (GIIRS) to assess the social and the social outcomes of their investments are of
environmental impact of companies and primary importance and financial returns are
funds. GIIRS adopts a ratings and analyt- secondary. Alternatively, “financial first” inves-
ics approach. It allows impact investors to tors give more weight, relatively speaking, to
conduct better due diligence, make better financial return potential. The impact measure-
investment decisions and track and improve ment systems previously mentioned are also
impact. GIIRS is based on the industry- applicable at the fund level and can be utilized
recognized Impact Reporting and Invest- to measure the impact orientation of a fund.
ment Standard (IRIS). Fund investors also need to think through
the stage of enterprise development at which
the intermediary targets investments. Early-
Under the category of direct investing, there are stage social investing, as compared with growth-
essentially two different roles an investor can stage social investing, can have very different
assume: implications on risk and potential returns and
offer different forms of strategic value.
• Active/lead investor: This role involves Institutional investment managers who
taking the lead on sourcing deals, perform- seek to offer impact investment opportunities to
ing due diligence, closing transactions and their clients have multiple options for structuring
actively managing a portfolio of companies. fund investments. Because asset managers have
Early or growth-stage social enterprises tend a variety of investment capabilities, they have
to see great value in such investors since they more to consider when deciding upon a strategy.
generally take a hands-on approach to work- Such asset managers can form a fund of funds, set
ing with their portfolio companies; young up an internal direct investing fund, make direct
enterprises often welcome the governance investments in external impact funds or make
and advisory that such investors offer. direct investments in social enterprises with the
• Participating co-investor: A first-time inves- assistance of an external manager. Alternatively,
tor, or one without a strong local presence, as a more preliminary strategy, they can simply
can form working relationships with more act as an advisor to their clients in facilitating
active investors and participate as a co-inves- investments into external funds.
tor who provides capital but does not lead an Some fund managers have built impact
investment round. This strategy offers a low- investments into their broader portfolio, while
overhead way of transacting investments. As others seek to offer it as a separate product. In
such, it can serve as an attractive option to choosing a structure, all institutional investors
enter the impact investing space. need to take into consideration their unique
situations regarding fiduciary duty and their
legal obligations.
Diagrams 1 and 2 illustrate various structures
an investor may seek to adopt. While these mod-
els encompass a wide variety of options, they are
not exhaustive in capturing potential structures.
 11

1 Institutional Impact Investing:

Externally focused models

Institutional
Client Investment Assets

Institutional Asset Manager 1

Advisory Services Advisory Services

(independent) (internally developed) General Portfolio

2 3 4

Impact Investment Direct Investment

Fund of Funds (via external investment
(externally managed) management services)

Impact Investment
Funds
(externally managed)

Note: arrows represent

investment flows Social Enterprises

2 Institutional Impact Investing:

Internally focused models

Institutional Client
Investment Assets

Institutional Asset Manager

General Portfolio
1 2a 2b 3 4

Impact Investment Impact Investment

Fund of Funds Co-Invest Fund
(internally managed) (internally managed)

Impact Investment Optional:

Funds (Use external investment
(externally managed) management services)

Note: arrows represent Social Enterprises

investment flows
12

This strategy requires differentiated ex-

Structured Financial Products
pertise, for example, in venture investing or
There are an increasing number of bonds and partnership negotiation, and may need to be
public equities that go beyond socially respon- executed out of a Corporate Development or
sible investing, which emphasizes avoiding neg- a Corporate Venture Investment group. These
ative impact, and focus on financing projects groups should seek to lead intra-company col-
or businesses that proactively create positive laboration efforts devoted to sourcing financial
impact. This is the least direct form of invest- sponsorship, technical expertise and market
ing, and it is also well-suited to institutional intelligence. Broader collaboration can occur
investors due to the relatively low transaction with other internal organizations such as:
costs involved. • Commercial Business Units: House a depth
In terms of structuring, institutional invest- of technical expertise and valuable relation-
ment managers can either integrate these bonds ships in operating markets that can be lever-
or public equities into existing investment prod- aged to grow social enterprises.
ucts or can create a separate impact-dedicated
product for select investors specifically targeting • Sustainability/Corporate Social Respon-
the impact space. sibility: Offers knowledge on low-income
markets and expertise in engaging with core
business units to generate positive social and
Corporations
environment impact.
Many corporations harbor a diverse wealth
of resources that could contribute to social • Corporate Foundation: Provides funding
enterprise development. A corporation seeking sources that carry significantly less pressure
to enter the space ought to encourage collabo- to capture financial returns on investment
ration among various internal organizations to dollars. Foundation funding may need to be
pool resources to engage with low-income mar- targeted more at enabling initiatives rather
kets in order to simultaneously capture value than in investments that directly benefit the
from and add value to these communities. company.
As with the investor-specific strategies • Research & Development (R&D): If tapped
outlined previously, the following strategies effectively, supports product innovation for
also entail varying levels of involvement and low-income markets and may also be able
organizational change. However, all require an to deliver very patient funding for social
entrepreneurial nature and drive for innovation. enterprise opportunities positioned to be
largely long-term. R&D is increasingly based
Engage with New Businesses Externally out of regions at which potential products
Creating opportunities inorganically, through are targeted.
external venture investments or partnerships, Diagrams 3, 4 and 5 illustrate a few sample
tends to be the most efficient way to explore collaboration structures that corporations can
social enterprise. This strategy can be realized consider implementing. Corporations should
as quickly as a corporation is able to strategize, seek to explore the many possible variations to
source and close either a transaction or alli- these structures in customizing a strategy for
ance agreement. External venture investment their organization.
or partnership strategies possess many of the
same characteristics as direct investing, which
were outlined previously.
 13

3 Corporate Social Enterprise Development:

Investment Model

Corporation
Commercial
R&D Sustainability Corporate
Business
/ CSR Foundation
Unit(s) Strategic
Venture
Capital Unit
Project Management Business
Office Development

Corporate Partnership Equity and Board

Value-Add Agreement Participation

Social Enterprise
(external company)

4 CORPORATE SOCIAL ENTERPRISE DEVELOPMENT:

STRATEGIC ALLIANCE MODEL

Corporation Partner
Licensing,
Commercial joint venture or
R&D Sustainability Corporate collaboration Business
Business
/ CSR Foundation agreements Development
Unit(s)

Project Management Business Innovation programme

Office Development or Commercial
Business unit

Leverage internal corporate Provide

resources to launch and complementary
grow business assets and
Social Enterprise capabilities
(collaborative venture)

5 CORPORATE SOCIAL ENTERPRISE DEVELOPMENT:

INCUBATION MODEL

Corporation
Commercial
R&D Sustainability Corporate
Business
/ CSR Foundation
Unit(s)

Internal innovation programme

Fund and leverage various corporate

resources to launch and grow businesses

Social Enterprise
(internal venture)
14

Launch New Businesses Internally Governments

A company may choose to create new businesses As outlined below, governments can choose to
internally as a means of engaging with social shape impact investing and social enterprise
entreprise. This strategy is often characterized activity either as a direct participant in impact-
by incubating social enterprise business models oriented markets or as an outside influence.
and subsequently building them out on a more However, regardless of the strategies it selects,
widespread, commercial basis. As these can be a government must take care to ensure that its
rigorously entrepreneurial projects, they are of- interventions are well targeted, transparent
ten best launched through internally funded in- and implemented efficiently at a fitting scale
novation programmes or even as separate joint and for the appropriate duration.
ventures with innovative partner companies.
The incubating organization must have high Increase Inflow of Capital
risk tolerances and the skills and capabilities to This strategy serves to improve the overall
translate ideas into business ventures. availability of capital in the social enterprise
In terms of structuring, once these busi- space by helping investors overcome structural
nesses reach critical mass, they often need to be barriers to impact investing.
spun off into independent business units (rather
than integrated into existing ones) given that • Influence strategy: Create regulations or
social enterprise activities require a unique and mandates that direct how investors can or
highly customized operating model. should invest capital.
Very similar to external business creation, • Participation strategy: Develop co-investment
organic business creation can leverage other opportunities to attract investors via risk-shar-
capabilities within the corporation, such as the ing arrangements.
venture investment unit, existing commercial
business units, corporate social responsibility or
Direct Capital
research & development.
Such policy enables capital to be shifted to
Realign Existing Core Business areas that may require greater investment. It
allows the government to target specific prior-
This strategy is among the most intensive
ity sectors for further development, especially
ways for a corporation to engage with social
when there is a long history of underprovision-
enterprise, but it also offers the highest level
ing of social goods in the area.
of engagement and, hence, opportunity. A
company must have or be willing to establish • Influence strategy: Implement programmes
a significant presence in low-income markets and regulation to encourage investment
and potentially invest in new local infrastruc- through improved transaction efficiency and
ture, including staff and operating systems. In market information.
many cases, this involves a significant degree of • Participation strategy: Leverage direct gov-
organizational change. ernment investment to promote products or
Many companies recognize the need to services that create positive social impact.
customize products or supply chains to suit
low-income markets, rather than simply adapt-
ing existing products and supply chain systems Strengthen Enterprises and Intermediaries
to these markets. Implicit in this assertion is This strategy focuses on building the demand
the fact that adopting such a strategy would for investment by improving investment at-
require a significant and relatively long-term tractiveness and capacity of opportunities in
commitment to the market – something that the longer-term.
may understandably cause some companies
• Influence strategy: Create enabling corporate
to hesitate. However, companies do have the
structures that help to simplify investment
option of adopting a more staggered approach
entry, take advantage of policy incentives or
to this strategy (for example by first focusing on
provide a clearer path for impact investors.
low-income urban markets and then moving
to more difficult rural markets), thereby easing • Participation strategy: Offer tools that serve to
their entry and reducing some of the immedi- mitigate investor risk by ensuring a minimum
ate-term challenges they would otherwise face. rate of return or by taking a first loss position.
 15

choose approaches
Choose the approaches that most effectively advance your defined strategy

Once established, an impact investing, social

enterprise development or enabling policy Sequoia Capital, a Silicon Valley-headquar-
strategy can be implemented through one or tered venture capital fund, with a local pres-
more approaches. These are the diverse set of ence in India, has made direct investments in
options with which an investor, a company or a socially beneficial areas such as financial inclu-
government can actively engage in the impact sion (Ujjivan Financial Services, Indian Shelter
investing and social enterprise space; they are Finance Company), affordable education (K12
the conduits through which social or environ- Techno Services) and affordable healthcare
mental impact is ultimately achieved. While the (Glocal Hospitals). Sequoia’s investments were
list below is by no means exhaustive, it details made on the premise that these institutions
a number of both common and innovative have potential to scale in India’s urban and
options for promoting an engagement strategy rural markets.
and its underlying rationale. For illustrative
purposes, the list is supplemented with several SNS Impact Investing is the development
brief examples of how a range of commercial investing arm of SNS Asset Management,
institutions and governments has used these a Netherlands-based institutional asset
options to engage with the space. manager. The unit employs a unique model,
whereby it works with outside investment
managers to source and close transactions
Investors
in target companies. SNS Impact Investing
Debt and Equity Investment in Social Enterprises focuses on making long-term investments in
microfinance, agriculture and other areas in
An array of investable social enterprises exists
frontier and emerging markets.
throughout various sectors and regions of the
world. These companies offer opportunities for
both equity and debt investments.
Incubation and Seed Funds
Due to the nascency of the sector, typical
investment opportunities demand seed- and Among many social investors, there is growing
growth-stage capital, more so than later-stage recognition that in order to improve the ability
private equity funding. Hence, investments may of the industry to absorb capital and develop a
be suited to investors who can work with the strong future investment pipeline, more early-
smaller transaction sizes required by early-stage stage capital, combined with capacity building
companies. assistance, is clearly needed. This realization
This approach provides direct investors with has spurred the launch of a number of early-
the opportunity to engage by providing strategic stage incubation programmes. These incubation
advisory, management support and technical programmes or seed funds often require more pa-
assistance. tient investors who have a higher risk tolerance.
Whereas seed-stage or angel investments in
social enterprises have traditionally come from
philanthropic sources, the commercial op-
portunity for incubation funds is ripe as many
markets hold a substantial amount of growth
capital. There are a number of later-stage
investors seeking to help investee companies ac-
celerate though their next stage of growth and,
eventually, towards secondary sale opportuni-
ties for seed-stage investors.
16

Growth-Stage Funds Loan Guarantee Programmes

Social investment funds: These “impact first” Loan guarantee funds serve as collateral for secur-
funds seek both social impact and a financial ing loans to social enterprises or investment funds
return but place priority on the former. Hence, targeting social enterprises. Overall, they can be
their investor base tends to consist mainly of useful tools to help stimulate access to finance.
more philanthropic investors. They are less common than traditional invest-
These funds may utilize equity, quasi-equity ment instruments but may be a more frequently
or debt instruments. Several are globally diverse, used tool in the future. On a separate note, but
but many regionally focused funds exist as well. related to reducing risk, investors may also offer
Commercially-oriented social investment or make use of insurance products, which cover
funds: These “financial first” funds, which pri- areas such as political and currency risk.
oritize financial objectives, seek “market-rate”
Structured Financial Products
returns while also explicitly pursuing a posi-
tive social impact through their investments. Investment managers have been using negative
Traditionally, development finance institutions screens to filter out investments that may have
have been a main source of capital for such associations with negative impacts to the envi-
funds, though they are now seeing increasing ronment or society. However, investors are now
interest from other institutional investors and increasingly using positive screens to identify
corporate investors as well. Like “impact first” impact investing opportunities.
funds, these funds also employ a variety of capi- • Bonds: A number of financial institutions
tal instruments: equity, quasi-equity and debt, have begun to offer bonds that are used to
and they may be either globally diversified or finance the development of environmentally
regionally focused. or socially beneficial projects. These fixed-
income instruments often provide market
Acumen Fund is a US-based non-profit rate returns.
organization that makes venture investments • Collateralized Debt Obligations (CDOs):
in social enterprises across a range of coun- These structured vehicles have been used in
tries and sectors. Considered an “impact first the past, primarily in the microfinance sector,
investor”, Acumen’s investors include insti- but it remains to be seen whether they will be-
tutional entities (e.g., Bill and Melinda Gates come a highly prevalent option in the future.
Foundation), corporate foundations (e.g.,
• Equities and mutual funds: Though social
Google.org) as well as other philanthropic
mutual funds have increased in prevalence,
investors (e.g., Skoll Foundation).
equities are still limited in number. Even-
Bamboo Finance, headquartered in tually, as many social enterprises mature,
Switzerland, is considered a commercially- i.e., absorb larger equity investments and
oriented social investment fund and also ultimately become listed on public markets,
invests globally and across sectors. It has a there will be a larger number of equity-based
diverse institutional investor base compris- products available – especially with the pos-
ing private banking clients, family offices, sible future advent of social stock exchanges.
pension funds, a hedge fund, a sovereign
wealth fund and others. The International Finance Facility for
Immunisation, a development finance
institution, has raised more than US $3 bil-
lion in bonds since 2006. HSBC and Daiwa
Impact Base, an initiative of the Global
Securities, among others, have assisted
Impact Investing Network (GIIN), provides a
in underwriting these securities in the
range of prospective impact investors with a
Japanese capital markets. Both retail and
tool to search for funds that may fit with their
institutional investors have invested in these
impact investment interests and objectives.
bonds, financing projects that immunize
children and strengthen health systems in
the world’s poorest countries.
17
18

Corporations Strategic alliances: Common vehicles used to

implement alliances include strategic partner-
Strategic Investments & Partnerships
ship agreements, licensing arrangements and
Strategic venture investments: Many corpora- joint ventures. These vehicles seek to capture
tions develop venture capital programmes that business synergies by leveraging the unique as-
are intended to advance the strategic objectives sets of the partnering organization. An alliance
of the firm, typically by making commercial in- can be especially useful when engaging with
vestments in external companies. One approach low-income markets, as it can bring together
a company can take toward impact investing the strengths of companies with relevant mar-
would be to leverage such programmes to make ket experience or infrastructure and companies
investments in social venture funds or directly that possess valuable, relevant assets (for exam-
in high-potential social enterprises. ple, mobile phone platforms, solar technology
and others). Partners could include other com-
mercial organizations or even NGOs and other
Cisco, a global networking technology com- civil society organizations whose missions, re-
pany, invested in Aavishkaar, a venture fund sources and expertise may align with the firm’s
founded to promote development in rural interests in engaging social enterprises and that
and semi-urban India. Cisco aims to promote can help maximize ultimate impact.
technology-enabled inclusive growth and Though “base of the pyramid” markets most
seeks to use this investment as a way to often require highly customized and localized
learn about the market and accordingly align solutions, corporations should not overlook the
technology innovation. innovation and resources that can be leveraged
from more developed countries.
Starbucks, a global coffee company, invested
in Root Capital, a social investment fund that
provides financing and training for rural com- Cemex, a global building materials com-
munities across sub-Saharan Africa and Latin pany, based in Mexico, created “Patrimonio
America. The investment enables Starbucks Hoy” to provide a market-based solution that
to strengthen and stabilize its supply chain. supports affordable housing development for
low-income families. Patrimonio Hoy sells
Intel Capital invested in Altobridge, an Irish Cemex building materials at average market
company, which brings affordable mobile prices and offers microfinancing, technical
voice and Internet connectivity to undercon- advice and logistical support to its custom-
nected communities in remote regions of ers. They have partnered with community
the world. Intel Capital and Altobridge seek organizations to train women promoters on
to bring the social and economic benefits of financial literacy and sales with local Cemex
mobile connectivity to these populations. This distributors to supply related products. The
investment aligns with Intel Capital’s goal of programme has opened new markets and
engaging with innovation and entrepreneur- revenue streams for Cemex in Mexico and
ship in emerging markets. across Latin America.
 19

Incubation New Product Development

The creation of new businesses can start Companies that have the ability to innovatively
either at a microlevel or immediately on a more customize products or services to address the
substantial scale. A microlevel approach may basic needs of low-income populations are well
involve sourcing ideas through internal inno- positioned to enter the social enterprise space
vation competitions and then using business directly. Their ability to tap relevant distribution
accelerators to grow them into business pilots. networks to sell their new offering in volumes
On a greater scale, new businesses can also be that justify the development costs will be key.
launched by gaining leadership buy-in and rais- Companies would likely need to seek external
ing sizeable internal investment to pilot large- partners to effectively market, sell and possibly
scale greenfield projects. Companies with limited provide complimentary financing services for
experience in low-income markets may wish to their products.
use an approach that resembles more the former,
while a company already operating in such a
market may adopt the more ambitious approach.

Mahindra Finance, a subsidiary of Mahin-

dra & Mahindra, one of India’s largest
conglomerates, noticed that rural housing
was a substantially underserved market.
In response, it created a new corporate
entity called Mahindra Rural Housing Fi-
nance (MRHC), which leveraged Mahindra
Finance’s market knowledge but created
a completely new business model to ven-
ture into rural housing finance and cater
specifically to the low-income segment.
The business was launched directly out of
MRHC and, after a pilot in two states, was
expanded more broadly.
20

Procurement Distribution Realignment

Supplier realignment can help a company This may involve either establishing new distri-
achieve impact either indirectly, by procuring bution systems or taking on new distribution
through social enterprises, or directly, by trans- partners in low-income urban or rural areas.
forming the firm’s supply chain to source from Such realignment can provide access to new
low-income producers. Approaches can range markets for corporations.
from directly sourcing agricultural produce from
small-scale farmers to utilizing business process
outsourcing services that specifically employ low- Nestlé Brasil created “Nestlé Até Você”, or
income populations. Such supplier engagement “Nestlé Comes to You”, a door-to-door sales
can provide cost benefits as well as contribute to system where Nestlé employs and trains
overall supplier diversification. microdistributors (largely women in low-
income neighborhoods) to sell their products.
This programme provides Nestlé Brasil with
The International Finance Corporation, better access to a new market segment.
the private sector arm of the World Bank
Group, provided investment and advisory
services to ECOM, a company that engages
Governments
with small-holding coffee growers in Central
America to support farm productivity and Targeted Incentives
certification. It provides financing and techni-
Tax incentives: With tax credits, a govern-
cal assistance to these farmers, who in turn
ment would provide tax relief to investors in
help ECOM to meet the market demand for
exchange for making qualified investments in
high-quality, certified premium coffees and
businesses that target development projects or
capture relates sales premiums; and overall,
serve low-income communities. Tax incentives
to scale its certified coffee business.
ultimately divide a subsidy between investors
and beneficiaries and should be carefully evalu-
ated against direct investment. They must also
SK Telecom, a South Korean wireless tele- be sufficiently targeted to avoid crowding out
communications operator, set up an affiliate intended beneficiaries and diluting the poten-
called “Happy Narae”, which contracts with tial impact of the intervention.
suppliers that hire largely from disadvan-
taged populations. Such suppliers can be Subsidies: Direct subsidies can provide a very
competitive in that they are able to realize strong incentive. However, they must be care-
benefits from tax breaks and other incentives fully employed as they tend to not be economi-
(offered through South Korea’s “Social En- cally efficient and can distort markets in that
terprise Promotion Act”) and high employee beneficiaries can develop a long-term reliance
retention rates. on their subsidies.

The Indian Ministry of New and Renew-

able Energy supports Husk Power Systems
(HPS), a company that provides affordable
electricity to rural areas, with subsidies
that partially cover the set-up costs of its
renewable energy plants. The Ministry has
partnered with HPS alongside several other
social, commercial and corporate investors.
21
22

Procurement mandates: Governments can Regulation Reform

indirectly increase investment and promote Investment regulation: Policymakers can
inclusion by setting mandates for public sector modify regulation to provide greater flexibility
institutions to follow when contracting with, for investment, for example, by loosening caps
purchasing or licensing from businesses. or by removing restrictions around the use of
financial instruments. The challenge lies in
Capital and Technical Assistance Programmes
ensuring that these broad-based policies create
Funding programmes: These programmes pro- specifically intended impacts. Hence, they may
vide direct financial assistance (grants, loans, often require more focused overlay policies to
equity) as well as other products (guarantees better shape desired outcomes.
and first loss positions, insurance) to businesses
in target sectors. Capital programmes should
seek to enter markets or economic segments The South African Government, using a
characterized by low private sector interest but broad stakeholder model, including active
with future potential for more robust private participation by the investment industry
sector participation after capacity building between 2009 and 2011, reformed pension
efforts. fund investment regulations effective from
2012. The new Regulation 28 increases
the percentage allowance for investments
The Inter-American Development Bank
allocated to private equity asset and debt
(IDB) is a multilateral development finance
asset classes and introduces principle-based
agency supported by 48 member govern-
regulation across the portfolio to enable in-
ments. The agency set up the Social Entre-
vestments that are socially and environmen-
preneurship Program (SEP), which offers
tally sustainable. Regulation 28 is expected
loans and supports technical assistance to
to increase demand around impact-oriented
sustainable, and ideally scalable, business-
investment themes.
es and projects that address socioeconomic
issues of poor and marginalized populations In 2005, regulators in Peru gave pension
in Latin America and the Caribbean. It has funds additional options to diversify their
thus far invested in sectors such as microfi- portfolios into multi-fondos, or “multiple
nance, energy, health, water and education. funds”. This led to a larger volume of institu-
tional investment in private equity, which in
turn may have led to greater investments in
Technical assistance: Capital programmes of- small, underinvested businesses.
ten include capacity building services (technical
assistance, education, partner linkages) either as
a complement to their financial assistance or as Legal reform: Several organizations are cur-
a stand-alone market building initiative. rently advocating for the creation of legal
Co-investment: Governments can par- structures that cater specifically to the goals and
ticipate in a more direct manner by making needs of social enterprises. Proposed structures
co-investments alongside private investors. could allow for-profit investments (not allowed
Co-investment opportunities allow for greater while registered as a non-profit organization)
risk sharing and hence serve to further attract in a newly recognized entity, and at the same
private capital. More broadly, such offers would time provide fiduciary alignment and improve
also provide positive market signaling to private transparency, reporting, and governance around
interests. Co-investments, or public-private part- social and environmental performance.
nerships, can occur either directly at the social
enterprise level or at the investment fund level.
 23

Legal reform can also be used to more Priority sector norms: Governments can
directly promote greater overall investment sup- mandate that private sector financial institu-
ply. Impact investing funds tend to be smaller tions invest a fixed percentage of their assets
in size than traditional commercial investment in target markets. Such norms can be used to
funds. Policymakers can help to reduce the allocate credit or other forms of investment into
overhead involved in setting up and operating marginal or underserved sectors. Implementing
investment funds by creating simpler processes such a policy can serve social enterprises well
and requirements, and thus encourage capital by increasing their attractiveness as an invest-
inflows. ment opportunity for financial institutions
seeking to meet allocation requirements.

B-Lab, a US-based non-profit organization,

is promoting legislation to create a new cor- For decades, the Reserve Bank of India
porate form that meets higher standards of (RBI) has required all public and private
purpose, accountability and transparency. A banks to direct a fixed percentage of lend-
distinct legal entity, while providing investor ing to “priority sectors”, which it defines as
and director protections, could enable mar- underserved or priority areas for economic
ket differentiation, focused investor interest growth. These requirements have driven
and targeted policy treatment. significant funding towards microfinance
institutions, which provide financial services
to poor urban and rural borrowers in India.
24

case studies

investor
TIAA-CREF
A Fortune 100 financial services organization,
TIAA-CREF is a retirement system for Americans
who work in the academic, research, medical
and cultural fields. TIAA-CREF pursues impact
investing through its Global Social and Commu-
nity Investing Department within the company’s
Asset Management division.

Rationale: Client interest in social investing

was part of the reasoning for creating an im-
pact investment programme supporting areas
such as global microfinance, community bank
deposits, corporate social real estate and green
building technology.

Strategy: It has committed capital of more than

USD 120 million in microfinance through its
Global Microfinance Investment Program (GMIP).
The programme seeks to make investments in
leading microfinance companies and private
equity funds. GMIP captures a wide range of mi-
crofinance models and products, including small
deposits, microinsurance and small and medium
enterprise lending. This strategy is funded by the
TIAA General Account, which is not available for
direct investment but supports the claims-paying
ability of guaranteed annuities.

Approach: As part of the GMIP, TIAA-CREF

has invested in the equity fund of Developing
World Markets, a commercially-oriented asset
manager that focuses on microfinance. TIAA-
CREF has also made a direct equity investment
in ProCredit Holding AG, which is the parent
company of 21 microbanks that operate in Af-
rica, Latin America and Eastern Europe.
 25

corporation
Safaricom
A Kenya-based corporation, Safaricom is a large Strategy: Safaricom approached Vodafone to
mobile network operator. It manages M-Pesa, a partner on initial concept development. Safa-
mobile money platform enabling the affordable ricom offered an expansive and robust market
transfer of money between individuals using a presence and in turn would be able to leverage
network of retail agents. M-Pesa serves custom- Vodafone’s technology solution. Their comple-
ers throughout Kenya and other countries. mentary assets and competencies offered a high-
potential partnership.
Rationale: The project was initially launched
as an experiment in applying a private sector Approach: Vodafone and Safaricom, together
solution to create development impact, but Sa- with other partners, created a pilot programme.
faricom then saw the opportunity to extend its Upon successful completion of the pilot and
service into a completely new business – that validation of the potential opportunity, M-Pesa
is, payment services. M-Pesa offers a substantial was launched as a separate entity to be operated
new revenue stream, especially given the size by a dedicated department within Safaricom; the
of the unmet need in the market, and provides technology is owned and hosted by Vodafone.
a way for Safaricom to retain customers in its
mainstream mobile segment.
26

government
The Small Industries Development Bank of India
(SIDBI)
Set up under an act of Indian Parliament, SIDBI Strategy: As a development bank, SIDBI seeks
is a financial institution that promotes the mi- to invest in target companies and better posi-
cro-, small- and medium-sized enterprise sec- tion them to succeed in private sector markets.
tor. Its domains of interest include small-scale SIDBI works to strengthen and build the capac-
industrial units, financial services, healthcare ity of microfinance institutions, rural enterpris-
and transportation, among others. es, energy efficiency projects and other impact
initiatives.
Rationale: SIDBI was created to foster and
develop sustainable and scalable companies, Approach: SIDBI uses a range of financing tools
including ones that engage the “base of the (including loans and equity) to achieve its goals.
pyramid”. Such enterprises contribute strongly However, it also provides innovative forms of
to inclusive growth, a high priority in India’s non-financial assistance. It offers training and
economic development agenda. SIDBI aims to education programs for entrepreneurs as well
help engage the private sector and increase the as local lenders and a nationwide database
capital resources available for development. connecting entrepreneurs to investment pack-
ages from potential financiers. It has also led
infrastructure-level initiatives, such as develop-
ing credit bureaus and creating tool kits and
knowledge resources for relevant sectors.
 27

acknowledgements
Representatives from the following organiza- Individuals from the following organizations
tions comprised a Steering Committee, which provided independent perspectives to inform
worked closely with the UN Global Compact the content of the Framework for Action:
and The Rockefeller Foundation to shape the
content of the Framework for Action: • Apollo Hospitals
• Ashoka Social Financial Services
• Rajan Kundra, Acumen Fund
• Aspen Network of Development Entrepre-
• Carmen Correa, AVINA Foundation neurs (ANDE)
• Jean-Philippe de Schrevel, Bamboo Finance • B-Lab
• Pete Ondeng, East Africa Leadership Institute • Draper Fischer Jurvetson
• Mark Kramer, FSG Social Impact Advisors • Equilibrium Capital
• Richard Hall, Intel Corporation • Financierings-Maatschappij voor Ontwikkel-
• Ashish Karamchandani, Monitor Group, ingslanden (FMO)
India • Global Impact Investing Network
• GV Ravishankar, Sequoia Capital, India • Global Compact Network United States
• Min-Jeong Kang, SK Telecom • Inter-American Development Bank
• Janssen Healthcare Innovation, Johnson &
Johnson
• Social Enterprise, Kellogg School of Manage-
ment, Northwestern University
• LGT Venture Philanthropy
• Lok Capital
• Mahindra Finance, Mahindra & Mahindra
• Nestlé Brasil
• Overseas Private Investment Corporation
(OPIC)
• Principles for Responsible Investment (PRI)
• RBC Global Asset Management
• Project Management Division, Small Indus-
tries Development Bank of India (SIDBI)
• Shell Foundation
• Sinco
• SNS Asset Management
• TIAA-CREF
• Vestas
• Wise Solutions
• World Resources Institute, New Ventures
28

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The Rockefeller Foundation’s Harnessing the Power of Impact Invest-
PHOTO CREDIT
ing initiative aims to support the development of leadership platforms, Cover photo © Shehzad Noorani/
infrastructure, and intermediation capabilities that can efficiently place
for-profit impact investments to improve a wide range of social and/
World Bank
or environmental conditions. The Initiative also seeks to contribute to Page 7 © UN Photo/Eskinder Debebe
fundamental research about impact investing so that its promise and
challenges are widely understood. The Rockefeller Foundation has part- Page 8 © UN Photo/Ky Chung
nered with the United Nations Global Compact to produce this Frame- Page 17 © Dominic Sansoni/World
work for Action as a publicly-available resource for all stakeholders
interested in supporting the development of a vibrant impact investing Bank; Alfredo Srur/World Bank;
industry. Readers should be aware that the Rockefeller Foundation has iStockphoto/MShep2
had and will continue to have relationships with many of the organiza-
tions identified in this report, including through the provision of grant Page 19 © UN Photo/Eskinder Debebe
funding and Program Related Investments. Page 21 © UN Photo/Martine Perret
The Rockefeller Foundation expressly disclaims any responsibility
in the use of this material, including its potential distribution with any Page 23 © UN Photo/Evan Schneider
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not intended as an offer or solicitation for the purchase or sale of any
financial instrument. The opinions and recommendations herein do not Page 25 © iStockphoto/Bert van Wijk,
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and are not intended as recommendations of particular securities,
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of this material must make its own independent decisions regarding any World Bank
securities or financial instruments mentioned herein.
 The Ten Principles of the
United Nations Global Compact
Human rights

Principle 1 Businesses should support and respect the protection of

internationally proclaimed human rights; and
Principle 2 make sure that they are not complicit in human rights abuses.

Labour

Principle 3 Businesses should uphold the freedom of association and the

effective recognition of the right to collective bargaining;
Principle 4 the elimination of all forms of forced and compulsory labour;
Principle 5 the effective abolition of child labour; and
Principle 6 the elimination of discrimination in respect of employment
and occupation.

Environment

Principle 7 Businesses should support a precautionary approach to

environmental challenges;
Principle 8 undertake initiatives to promote greater environmental
responsibility; and
Principle 9 encourage the development and diffusion of
environmentally friendly technologies.

Anti-corruption

Principle 10 Businesses should work against corruption in all its forms,

including extortion and bribery.

Published by the Global Compact Office

United Nations, June 2012